Neighborhood Effects on Children’s Subjective Deprivation: Are Poor Children’s Perceptions of the Economic Situation in their Home Influenced by their Neighborhood?

Do social comparison effects exacerbate children’s subjective experiences of poverty? Research on relative income effects indicates that reference groups are relevant to an individual’s well-being. While these effects are rather well understood for adults, it is unclear whether children are affected in a similar way. In our analysis, we investigate if children in low-income families perceive the economic situation in their home differently if they live in a wealthy (as compared to a disadvantaged) neighborhood. Drawing on parent and child data from the German Family Panel pairfam (3600 observations from 1691 dyads) enriched with district-level neighborhood data, we analyze the association between neighborhood socioeconomic status and children’s perceptions of the financial situation in their home. Controlling for a number of indicators for the economic situation in the family such as household income, social welfare benefits, and parents’ perception of family finances, we find that children from low-income families feel less deprived if they are living in neighborhoods with a higher socioeconomic status. In contrast, for children from families with an equivalence income above the median regional equivalence income no neighborhood effects are found.